When to Rob a Bank: ...And 131 More Warped Suggestions and Well-Intended Rants (7 page)

Much more important, but harder to do, would be to find a way to make it credible that we will actually pay the bounty. I’m sure there is plenty of discretion in deciding to whom and how much of that bounty gets paid. For instance, if I did some statistical analysis that somehow narrowed down his whereabouts to within one thousand yards, and
then the Navy SEALs canvassed that area and found him, would I get the money? I’m not so sure they would give it to me. I’m guessing the Pakistani peasant who has some information on Bin Laden probably shares my doubts.

Indeed, no bounty was ultimately paid. As
reported by ABC News
, “the raid that killed the al Qaeda leader in Pakistan on May 2 [2011] was the result of electronic intelligence, not human informants . . . The CIA and the military never had an al Qaeda operative as an informer willing to give him up.”

Some dastardly Coca-Cola employees recently got nabbed trying to sell corporate secrets to Pepsi. Pepsi turned the bad guys in and cooperated in the sting operation.

Did the executives at Pepsi give up the chance to make huge profits at Coke’s expense in order to “do the right thing”?

I had lunch yesterday with my friend and colleague
Kevin Murphy
yesterday. He made an interesting point: knowing Coke’s secret formula is probably worth almost nothing to Pepsi. Here is the logic.

Let’s say that Pepsi knew Coke’s secret formula and could publish it so that anyone could make a drink that tasted just like Coke. That would be a lot like what happens to prescription
drugs when they go off patent and generic drug companies come in. The impact would be that the price of real Coke would fall a lot (probably not all the way to the price of the generic Coke knockoffs). This would clearly be terrible for Coke. It would probably also be bad for Pepsi. With Coke now much cheaper, people would switch from Pepsi to Coke. Pepsi profits would likely fall.

So if Pepsi had Coke’s secret formula, they wouldn’t want to give it away to everyone. What if they instead kept it to themselves and made their own drink that tasted exactly like Coke? If they could really convince people that their drink was identical to Coke, then the new Pepsi-made version of Coke and the Real Thing would be what economists call “perfect substitutes.” When two goods are essentially interchangeable in consumers’ minds, that tends to lead to fierce price competition and very low profits. Neither Coke nor the Pepsi knockoff of it would be very profitable as a consequence. With the price of Coke lower, consumers would switch away from the original Pepsi to either Coke or the new Pepsi-made Coke knockoff, which would be far less profitable than original Pepsi anyway.

In the end, both Coke
and
Pepsi would likely be worse off if Pepsi had Coke’s secret formula and acted on it.

So, maybe the executives at Pepsi were acting morally and honorably when they turned in those suspected of stealing Coke’s secrets.

Or maybe they are just good economists.

What began as a casual observation somehow turned into a crusade, with Dubner becoming an unofficial spokesman for the abolition of the penny. During a
60 Minutes
segment on the subject, he said the U.S. suffers from “pennycitis,” and that the penny is about as useful as “having a fifth and a half finger on your hand.” Below are excerpts of various anti-penny posts.

Whenever I get change for a dollar, I ask the cashier to keep the pennies. They aren’t worth my time, or hers, or yours. Sometimes the cashier refuses for bookkeeping purposes, in which case I politely accept the pennies and then throw them in the nearest trash can. (Is this illegal? If so, then I guess we should start arresting people for throwing money in wishing wells, too.)

If I were the type of person who regularly a) loaded up my pocket every day with loose change or b) brought all my loose change to a bank or supermarket coin machine, then it might be worthwhile to keep the pennies. But I’m not, and so it’s not. These facts, coupled with the reality of inflation, have led me to wish for years that the penny would be abolished, and probably the nickel, too. (When we were kids, playing Monopoly, we never used the one-dollar bills; did you?)

There are all kinds of reasons to get rid of the penny, but perhaps the only one you need to know is that it costs the U.S. Government a lot more than one cent to make a penny. Considering that we lose money every time a penny is made, and that they aren’t useful in any meaningful way, it seems like a no-brainer that we should get rid of the penny. Inflation has rendered it a bad idea, for both producer and consumers.

But I am happy to see that there is a sensible alternative to throwing away loose change: “rebasing” the penny to make it worth five cents. The plan comes courtesy of François Velde, an economist at the Chicago Fed. I’d like to think that the serious people in charge of our nation’s currency will take this argument seriously, but considering what I know about the penny, and politics, and inertia, I’m not holding my breath.

■ ■ ■

Why does the U.S. still use pennies? One big reason: lobbyists. I recently appeared on a
60 Minutes
segment called “
Making Cents
.” I discussed the foolishness of keeping the penny; but
60 Minutes
included the pro-penny position as well. Here’s an excerpt:

Mark Weller is the voice of “Americans for Common Cents,” a pro-penny group that claims that rounding up will cost Americans $600 million a year . . . He
says without the penny, charities, too, would suffer, on the theory that people are less likely to donate as many nickels. As it is, penny drives around the country collect tens of millions of dollars a year for medical research, for the homeless, for education . . .

But as Weller freely admits, he’s got a financial interest in the high cost of penny pinching: Weller is a lobbyist for Jarden Zinc, the Tennessee company that sells those little blank discs for the mint to turn into Lincoln pennies.

I guess instead of wasting my time arguing against the penny, I should just buy some zinc futures.

■ ■ ■

The Great Penny Debate continues to limp along. One hundred million pennies, collected by schoolchildren, were
put on display at Rockefeller Center
. Meanwhile, lots of people continue to
argue for elimination of the penny
.

I am firmly on the abolitionists’ side. The only reasons I can think of for keeping the penny are inertia and nostalgia. Talk about
deadweight loss
!

The most ridiculous pro-penny defense I’ve seen in a while appeared in a recent full-page ad in the
Times
. It was taken out by Virgin Mobile, which was promoting its texting service as so cheap to use that it made even a penny worth keeping. The headline read:

“New Legislation Will Attempt to
DO AWAY WITH THE PENNY.
What’s Next, Puppies and Rainbows Too?”

Here is the line that caught my attention:

And what does America think? 66%* of our population wants to keep the penny and 79% would stop to pick one up off the ground.

If you follow that asterisk to the bottom of the ad, here’s what you find:

*
Source
: The 8th Annual
Coinstar
National Currency Poll

For those of you who don’t know, Coinstar is the company that puts change machines in supermarkets, in which you can dump your coin jar and receive a receipt that you take to the cash register for folding money. Coinstar apparently takes a commission of 8.9 percent for providing this service.

While the Coinstar National Currency Poll is said to be compiled by an independent market research organization, I am somehow not very surprised that a survey commissioned by a company that makes money from coin harvesting is able to produce a result saying that two-thirds of Americans “want to keep the penny.”

■ ■ ■

I never set out to be anti-penny, but somehow it happened, and I now publicly rant whenever possible that the penny should be eliminated.

While I stand by my belief that the penny is lousy as currency, someone has finally come up with a use for pennies that has made me reconsider my extinction argument:
make a floor out of them
!

The penny floor can be found at the
Standard Grill
at the new
Standard Hotel
in New York, the one straddling the
High Line
. The Standard tells us that it used 250 pennies per square foot, or 480,000 pennies in all.

For those of you thinking about a home renovation, that’s $2.50 per square foot in flooring materials. That stacks up pretty well against glass tile ($25), polished marble ($12), porcelain ($4), or even prefinished walnut ($5). It tells you something about the penny’s uselessness as a currency that, even though it is actual money, it is still cheaper than all these other materials to make a floor out of.

For a long time, the pro-life movement has had a keen sense of how people respond to incentives. Protesters outside of clinics proved to be a very effective strategy for raising the social and moral costs of seeking an abortion.

Now a Planned Parenthood clinic in Philadelphia has come up with a very clever strategy for fighting back, called Pledge-a-Picket. As they explain:

Every time protesters gather outside of our Locust Street health center, our patients face verbal attacks from them. They see graphic signs meant to confuse and intimidate . . . We are all called murderers, are lectured to about committing sins, and are told we will pay the “ultimate price” for our actions.

Here’s how it works: You decide on the amount you would like to pledge for each protester (minimum 10 cents). When protesters show up on our sidewalks, Planned Parenthood Southeastern Pennsylvania will count and record their number each day . . . We will place a sign outside the health center that tracks pledges and makes protesters fully aware that their actions are benefiting PPSP. At the end of the two-month campaign, we will send you an update on protest activities and a pledge reminder.

My prediction: abortion clinics around the country will soon be adopting this approach. What I think is so clever about this approach is the way it transforms the outrage, anger, and helplessness that ardent pro-choice folks feel toward the protesters into a financial incentive that works on behalf of the pro-choice people and against the protestors. On the margin, I think that donations will be higher because potential donors can then derive pleasure from the
presence of the protesters, or at least less pain. It is empowering. On the other hand, if I am a protester, I will hate the idea that what I am doing may be making Planned Parenthood stronger, decreasing the utility of the protest.

According to the
S&P/Case-Shiller
index of housing prices, home prices fell by about 6 percent in the U.S over the course of 2007. By my rough calculations, that means that homeowners have lost about $720 billion in wealth as a consequence. That is about $2,400 for every person in America, and $18,000 for the average homeowner.

Relative to stock market declines, however, that loss of $720 billion in a year doesn’t look quite so big. The total market capitalization of U.S. stock markets is the same order of magnitude as the total value of the housing market (between $10 and $20 trillion). In one week during October 1987, the U.S. stock market lost over 30 percent of its value.

The $720 billion figure is also about the same magnitude as
the amount of money the U.S. government spent
on the war in Iraq for the first few years.

If you are a homeowner, how bad do you feel about this? You should feel pretty bad, but I’m guessing you would feel a lot worse in the following scenario: home prices did not fall at all last year, but one day you took $18,000 out of the bank
to pay cash for a new car, and someone then stole your wallet with the $18,000 in it. At the end of the day, your wealth would be the same (down $18,000, either from depreciation of the value of your home or because the money was stolen), but one loss is psychologically far worse than the other.

There are many possible reasons for why it doesn’t hurt so much to lose money on an asset like a house. First, it isn’t very tangible, since no one really knows what their house is worth anyway. Second, it hurts less whenever everyone else is also losing on their houses. (I once heard a very rich person say that he didn’t care about his absolute wealth, only what his ranking was on the
Forbes
list of richest people.) Third, you can’t really blame yourself for house prices falling, but you could second-guess your decision to carry around $18,000 in cash. Fourth, the fact that a thief has your money might make it worse than the money just evaporating into space, like it does when house prices fall. There are probably other reasons as well.

More generally, the economist Richard Thaler coined the phrase
mental accounts
to describe the way in which people seem to treat different assets as non-fungible, even though in principle it seems like they should be. Although my economist friends make fun of me for it, I definitely use mental accounts myself. For me, a dollar made playing poker means much more than a dollar earned from the stock market going up. (And a dollar lost playing poker is likewise far more painful.)

Even people who deny that they are affected by mental
accounts often fall prey to them. I’ve got a buddy in that category who won a big bet on NFL football (big relative to his usual football bet, but very, very small relative to his overall wealth) and the next day he spent the proceeds on a fancy new driver.

What does this all mean for housing prices? Well, if prices start going back up, it would be a lot more fun if the price increases came in the form of little packets of cash dropped outside your front door with the morning newspaper, rather than via house appreciation. I suppose all those people who took out home-equity loans figured this out a long time ago.